TIDMORCA
RNS Number : 6833M
Orcadian Energy PLC
18 September 2023
THE INFORMATION CONTAINED WITHIN THIS ANNOUNCEMENT IS DEEMED BY
THE COMPANY TO CONSTITUTE INSIDE INFORMATION AS STIPULATED UNDER
THE MARKET ABUSE REGULATION (EU) NO. 596/2014 AS IT FORMS PART OF
UK DOMESTIC LAW PURSUANT TO THE EUROPEAN UNION (WITHDRAWAL) ACT
2018, AS AMED. UPON THE PUBLICATION OF THIS ANNOUNCEMENT VIA A
REGULATORY INFORMATION SERVICE, THIS INFORMATION IS CONSIDERED TO
BE IN THE PUBLIC DOMAIN.
18 September 2023
Orcadian Energy plc
("Orcadian Energy", "Orcadian" or the "Company")
Proposed Farm-in to the Pilot Project
Farm-in Highlights
-- Orcadian has entered into a non-binding Heads of Agreement
("HoA") with a North Sea operator (the "Operator"), which details a
potential farm-out of the Pilot development project.
-- This is a provisional agreement and there can be no guarantee
that any transaction will occur. Any deal is subject to, amongst
other matters, completion of due diligence; negotiation of
documentation; and various regulatory and shareholder consents as
well as Board approvals of the Operator and Orcadian.
-- Orcadian has granted the Operator a commercial exclusivity
period until 30 November 2023. to complete definitive documentation
for the overall deal.
If the deal completes as documented in the HoA:
-- This will enable Orcadian and the Operator to progress the
development of the Pilot field, one of the largest undeveloped
discoveries in the Central North Sea ("CNS"), with significant
upside potential in the surrounding area.
-- The Operator will become operator of the Pilot development
and will acquire an 81.25% interest in Licence P2244 and will
become operator of the Pilot development.
-- Based upon the Competent Person's Report ("CPR") prepared by
Sproule in 2021, the Operator will acquire net reserves or
resources of 63.4 MMbbl on completion of the deal, with Orcadian
retaining 14.6 MMbbl of 2P reserves, carried to first oil.
-- The Operator and Orcadian will work to deliver a Field
Development Plan ("FDP") to the North Sea Transition Authority
("NSTA") for a polymer flood development of the Pilot field with
industry leading emissions performance.
-- Orcadian management expect this updated development plan will
now increase Pilot field reserves or resources by 5-10% relative to
the 2021 CPR scenario audited by Sproule.
-- Orcadian will retain an 18.75% carried interest in the Pilot
development with the Operator paying 100% of the pre-first oil
scope of work. After first oil, Orcadian will pay its working
interest share of expenditure.
-- Orcadian and the Operator have requested that NSTA extend the
second term of licence P2244 and will also request an out-of-round
application for the area of former Licence P2320 (which Orcadian
had to relinquish earlier this year), in support of the Pilot
development and the area plan.
-- On completion of the transaction, extension of the P2244
licence, and a licence award over former P2320, Orcadian would
receive a cash consideration of up to US$200,000 from the Operator,
with a further US$3,000,000 being received on Pilot FDP
Approval.
As previously noted, working capital remains very constrained.
Cash at today's date is cGBP90k, with a current monthly burn rate
of less than GBP20k.
Steve Brown, Orcadian's CEO, commented:
"We are delighted to have reached this agreement, which sets out
a potential pathway to production for the Company's Pilot
field.
"The Pilot field has a substantial proven reserve base with
material upside potential in the surrounding area. We are delighted
this transaction could enable Orcadian to retain a significant
interest in the project and to enjoy the long-term benefits of
producing oil for the UK.
"Developing energy in our own backyard contributes to the UK's
Energy Security and balance of payments; delivers long-term
high-quality jobs; and minimises emissions associated with
satisfying the UK's need for energy.
"We look forward to progressing the next stages of this proposed
transaction and providing further updates."
Background
The Pilot field is the Company's core asset and securing a
partner to farm-in to the project and finance the development of
the Pilot discovery has been the Company's key focus since its
foundation. Pilot was discovered by Fina Petroleum in 1989 and is
well appraised. The development plan under discussion with the
Potential Operator is designed to accelerate first oil and to
minimise the initial cost of the development.
The Pilot field has 2P Reserves of 78.8 MMbbl, as audited by
Sproule in April 2021. The revised plan is expected by Orcadian
management to result in an uplift to this reserve estimate; this
will be dependent on the precise plan adopted by the partnership.
The Company intends to update the CPR once the FDP has been
finalised.
Heads of Agreement
The Heads of Agreement ("HoA") are not binding upon either Party
except to the extent that Orcadian has granted the Operator an
exclusivity period, which runs to 30 November 2023. During this
period the Operator will finalise due diligence, seek to obtain
appropriate consents, and negotiate a Sale and Purchase Agreement
for P2244, a Joint Bidding Agreement for the area of former licence
P2320 and, if the Operator elects, a conditional Sale and Purchase
Agreement for P2482. Orcadian has requested an extension to the
second term of licence P2244 to allow the Operator to submit a
Field Development Plan and Environmental Statement. The licence
over P2244 is currently due to determine on 30 November 2023.
As discussed above, the heads of terms are not binding and there
can be no guarantee that any transaction will be entered into.
However, the terms documented in the non-binding Heads of Agreement
are as follows:
-- It is proposed that the Operator will pay all of Orcadian's
share of costs incurred in relation to the pre-first oil
development scope of work on the Pilot field, and any other costs
relating to the Pilot development incurred prior to first oil.
After first oil on the Pilot Field, Orcadian will pay its working
interest share of all costs.
-- The intention is that, if a deal was to complete, the
Operator would become the operator of the Pilot development
project, and that Orcadian would continue to provide sub-surface
support to the Operator's team, to build upon the work undertaken
by Orcadian to prepare a development plan for Pilot.
-- Orcadian and the Operator will request that NSTA permit an
out-of-round licence application for the area of former licence
P2320. This acreage contains extensions of the Pilot field, the
likely location of a wellhead platform to be installed later in
field life, and the Feugh oil and gas discovery.
-- The intention is that, if a transaction completes, the
Operator would be assigned an 81.25% interest in the Pilot licence
and Orcadian would receive a payment of US$100,000 upon completion
of the assignment alongside an agreed extension to the Second Term
of the licence, Orcadian would receive a further US$100,000 on
award of a licence over the area of former licence P2320. In
addition, if FDP approval is obtained, the Operator would pay
Orcadian US$3,000,000.
-- It is proposed that the Operator will pay 100% of pre-first
oil development costs. Orcadian will pay its working interest share
of costs (18.75%) after first production from Pilot.
-- The pre-first oil development scope of work would include all
development and project planning and management activities; the
purchase, modification, mobilisation and installation of a suitable
FPSO and mooring; design, construction and installation of
flowlines, subsea systems, and a wellhead platform (if that is
adopted in the FDP), drilling and completion of five wells on
Pilot, all as defined in the NSTA approved FDP.
The Heads of Agreement are subject to, amongst other items, due
diligence, NSTA consent, the finalisation of binding legal
documents, certain approvals from Shell and TGS, Orcadian and
Operator board approvals and Orcadian shareholder approval. As
such, there can be no guarantee that any final agreements will be
entered into, or that this farm-out will complete.
AIM Rule 15
Pursuant to AIM Rule 15, the disposal outlined in this
announcement, if it was to complete would be treated under the AIM
Rules as a fundamental change of business. Accordingly, any
disposal would be conditional on the consent of shareholders being
given in a general meeting and accompanied by both a notification
and the publication of a circular containing details of the
disposal and convening the requisite meeting.
Financial Position
As set out in the announcements dated 15 May 2023, 2 August
2023, and 13 September 2023, the Company's working capital is very
constrained. The current cash balance is GBP90k and the Company's
current monthly burn rate is less than GBP20k; accordingly, the
Company will need to raise additional funds in the very short term.
It is continuing to explore all options.
Qualified Person's Statement
Pursuant to the requirements of the AIM Rules and in particular,
the AIM Note for Mining and Oil and Gas Companies, Maurice Bamford
has reviewed and approved the technical information and resource
reporting contained in this announcement. Maurice has more than 33
years' experience in the oil & gas industry and 3 years in
academia. He holds a BSc in Geology from Queens University Belfast
and a PhD in Geology from the National University of Ireland.
Maurice is a Fellow of the Geological Society, London, and a member
of the Geoscience Energy Society of Great Britain. He is
Exploration and Geoscience Manager at Orcadian Energy.
For further information on the Company please visit the
Company's website: https://orcadian.energy
Contact:
Orcadian Energy plc + 44 20 7920 3150
Steve Brown, CEO
Alan Hume, CFO
WH Ireland (Nomad and Joint Broker) +44 20 7220 1666
Katy Mitchell / Andrew de Andrade (Nomad)
Harry Ansell / Fraser Marshall (Corporate
Broking)
Tavistock (PR) + 44 20 7920 3150
Nick Elwes / Simon Hudson orcadian@tavistock.co.uk
About Orcadian Energy
Orcadian is a North Sea focused, low emissions, oil and gas
development company . In planning its Pilot development, Orcadian
has selected wind power to transform oil production into a cleaner
and greener process. The Pilot project is moving towards approval
and will be amongst the lowest carbon emitting oil production
facilities in the world, despite being a viscous crude. Orcadian
may be a small operator, but it is also nimble, and the Directors
believe it has grasped opportunities that have eluded some of the
much bigger companies. As we strike a balance between Net Zero and
a sustainable energy supply, Orcadian intends to play its part to
minimise the cost of Net Zero and to deliver reliable energy to the
UK.
Orcadian Energy (CNS) Ltd, Orcadian's operating subsidiary, was
founded in 2014 and is the sole licensee of P2244, which contains
78.0 MMbbl of 2P Reserves in the Pilot discovery, and of P2482,
which contain a further 52.2 MMbbl of 2C Contingent Resources in
the Elke and Narwhal discoveries (as audited by Sproule, with both
numbers modified to take into account the TGS royalty, see the CPR
in the Company's Admission Document for more details). Within these
licences there are also 118 MMbbl of unrisked Prospective Resources
(modified for TGS royalty). These licences are in blocks 21/27a,
28/2a and 28/3a, and lie 150 kms due East of Aberdeen.
Pilot, which is the field with the largest reserves in
Orcadian's portfolio, was discovered by PetroFina in 1989 and has
been well appraised. In total five wells and two sidetracks were
drilled on Pilot, including a relatively short horizontal well
which produced over 1,800 bbls/day on test. Orcadian's proposed low
emissions, field development plan for Pilot is based upon a
Floating Production Storage and Offloading vessel (FPSO), with over
thirty wells to be drilled by a Jack-up rig and provision of power
from a floating wind turbine.
Emissions per barrel produced are expected to be about a tenth
of the 2021 North Sea average, and less than half of the lowest
emitting oil facility currently operating on the UKCS. On a global
basis this places the Pilot field emissions at the low end of the
lowest 5% of global oil production.
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END
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